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An “oligarchy” of the largest IT suppliers to government is guaranteed to win most of the contracts going, blocking the chances of smaller providers finding work, according to industry views expressed in a parliamentary Public Accounts Select Committee hearing this morning.

“Vertical buying [by department] has created an oligarchy,” said Martin Rice, chief executive at Yorkshire-based IT firm Erudine. “That has to be destroyed. It’s the tail wagging the dog.”

Asked whether there was effectively a “cartel” of IT suppliers, David Clarke, chief executive at BCS The Chartered Institute for IT, said there was “no evidence” of this. But he warned that the government had made a mistake by completely outsourcing its procurement and management “skillset” when it began to push out large IT projects to suppliers in the 1990s.

“The UK government outsources far more than other European governments”, said Clarke. “All this [the exodus of skills] limits the government’s ability to change things.”

Committee members branded the responses as “frank” and “refreshing”. The PASC is preparing a report into how the government procures and uses IT, with the evidence sessions forming the basis of its findings.

Procurement on a large scale effectively cuts out smaller suppliers, the PASC heard, because tendering costs can hit millions of pounds.

Janet Grossman, chair of the Public Sector Council within industry body Intellect, said that for small suppliers, the “cost of entering the procurement cycle can be life threatening”.

“We need to recognise that it is very difficult for smaller companies to win business in the public sector,” agreed colleague Surreyya Cansoy, public sector director at the organisation.

Rice said the large suppliers “will always win”, adding: “They know if they lose one contract they’ll win another one.” The IT industry as a whole was “ripping people off”, he said.

He advocated that the government buy IT services “horizontally”. This would include procuring smaller services, such as data centre management, and running smaller projects – then developing the scale of the project if it is deemed successful in the early stages. Clear, open standards were vital to this, he said.

The committee heard from Rice that the government should consider “pay as you use” instead of upfront buying. Rice said this was increasingly the norm in the private sector.

“The government should then buy from whoever is offering the best deal, and that opens the market,” he said, instead of focusing on quotas of work for small suppliers.

A lack of control over procurement was a “fundamental issue” in government, Clarke at the BCS concluded. “This never happens in the private sector because the customer doesn’t let it happen. The government has to get back the skills to stop it.”